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To: Les H who wrote (193646)	9/25/2002 2:26:29 PM
From: Les H	Respond to of 436258

Global Economics: The Great Global Policy Conundrum Stephen Roach Triangulation of tradeoffs. First, there is the need for the United States to purge its post-bubble excesses; second, there is the imperative for the rest of the world to wean itself from excessive dependence on the U.S. economy; third, there is the need for global policy makers to avoid the deflationary abyss. A return to policy austerity would be required to purge America's post-bubble excesses, whereas policy stimulus would be exactly what a demand-deficient Euroland economy needs. Dealing with deflation requires aggressive fiscal and monetary stimulus. Policies working at cross-purposes. In the U.S., the demand shortfall required to purge post-bubble excesses clashes with the restoration of demand vigor needed to avoid deflation; there are inherent inconsistencies between these policy options. Is dollar depreciation a way out? A significant depreciation of the dollar — at least another 15-20% on a trade-weighted basis, in my view — could be a way out. It would go a long way in cracking the mold of U.S.-centric global growth, and it would also enable the U.S. to vent post-bubble tensions as well as temper "imported deflation." Implications for global policies. A strengthening of the yen may well force Japanese politicians and policy makers finally to come to grips with the imperatives of reform; a strengthening of the euro might have a comparable effect on European authorities — forcing a rethinking of increasingly pro-cyclical fiscal and monetary policies. And if the dollar doesn't fall? The dollar is only 3% below its late-January highs, hardly enough to spur the global rebalancing that the world so desperately needs; if currency adjustments remain limited, global rebalancing would then have to be vented by sharp corrections in other U.S. assets, notably stocks and/or bonds.